In the space of a week, investors were treated to two worrying spectacles. First, on Tuesday, a fake tweet about an explosion at the White House from a hacked Twitter account sent stocks on a wild five-minute ride. And then, two days later, Chicago Board Options Exchange, one of the world's largest bourses, was unable to open for nearly two and half hours because of software problems.

Once again, capital markets have to confront systems that are as fallible as they are complex. The list of recent technological woes—from
Facebook
Inc.
's botched debut on Nasdaq to BATS Global Markets Inc.'s failure to execute its own offering and
Knight Capital Group
's
trading mishaps—is long and troubling.

ENLARGE

Once again, capital markets have to confront systems that are as fallible as they are complex. Traders last week worked the floor of the Chicago Board Options Exchange after a software malfunction delayed the exchange's opening.
Bloomberg News

The common thread among all these incidents is the clash between a highly regulated world—financial markets—and the less-policed arena of the information-technology and Internet domains.

The former has come to rely on the latter to such a degree that costly mistakes are happening with worrying frequency.

The timing could hardly be worse, with confidence among individual investors at a low ebb because of the traumatic experience of yet another market debacle: the "flash crash" of May 2010.

"You have to provide a sense of predictability and stability that the markets aren't going to break every other month," says
Sang Lee,
co-founder of Aite Group LLC, a research firm. "You don't want to play around with investor confidence at this stage."

ENLARGE

Specialist Glenn Carell works at his post on the floor of the New York Stock Exchange Monday, April 29.
Associated Press

From this standpoint, though, the two most recent events are antithetic. The Twitter hoax should actually give investors some confidence in markets' resilience and flexibility. CBOE's problems, on the other hand, fit in the category of "be afraid, be very afraid."

Let's take them in turn. In the case of the "hash crash," markets reacted normally: They plunged on a piece of bad "news" and quickly rebounded once the information turned out to be bogus. They behaved like they do with other rumors.

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Luck played its part. As far as we can tell, the hoax was aimed at scoring political points rather than profiting from market disruption. The group that claimed responsibility, the Syrian Electronic Army, doesn't appear to have any other motive—and it has been seemingly active in the nonfinancial sphere.

In that case, though, a market adage, and my adaptation of an often-repeated tip, should come in handy, even in the Twitter age: Before acting on uncertain information, "buyer beware," and "don't trust, verify".

No such protections are available when markets simply don't work. The CBOE outage paralyzed the biggest U.S. venue for options trading, leaving investors without key tools to hedge risks and manage portfolios.

Old market hands told me that the consequences could have been much worse had the failure occurred on a busier, or more volatile, day.

Instead,
William Brodsky
,
the chief executive of
CBOE Holdings
Inc.,
told The Wall Street Journal, with a straight face, at a Las Vegas conference on Thursday, that it was "a good thing" the exchange hadn't had an outage in a long time.

The key difference between last week's two IT bloopers is that the cyber-attack was exogenous while CBOE's software glitch and subsequent slow response were internal issues. Software can and does go wrong, but why did the exchange not switch to its backup systems, or try routing orders to other platforms?

CBOE declined my requests for comment. At the Las Vegas conference on Friday,
Edward Provost,
CBOE's executive vice president and chief business development officer, was heard telling another attendee: "You know, we're all technology companies."

He is right. Modern markets are driven by IT and their operators must get technology right. As Aite's Mr. Lee says, "Exchanges…are all realizing that their core business isn't up to snuff."

The solution has to be more investments on creaky IT infrastructure and less on catering to lucrative high-frequency traders with newfangled products that don't help the smooth functioning of the overall market.

Calling for more regulation—a knee-jerk reflex in these cases—won't help. When the core business goes wrong, companies fix it from within or lose customers and credibility.

CBOE and its peers won't get away with that "it-doesn't-happen-much-around-here" explanation for very long.

—Additional reporting by Jenny Strasburg

—Francesco Guerrera is The Wall Street Journal's Financial Editor. Write to him at: currentaccount@wsj.com and follow him on Twitter: @guerreraf72.

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